<p>That will put the struggling bank at a further disadvantage as Bank of America and other rivals that have shed the stigma of government support become freer to raise compensation to attract talent and improve their standing with investors. <br />Citigroup’s fortunes have slipped recently as rising consumer losses overshadow gains from its trading activity, a business that has helped banks like Goldman Sachs return to record profits this year as the stock market rebounded.<br /><br />Pandit has made clear that repaying money the bank received under the Troubled Asset Relief Programme (TARP) is a priority. But it may be difficult for the bank to reimburse the government anytime soon, given continuing problems with troubled assets and loan losses. It also must navigate some tricky tax issues that would accompany any repayment. Citigroup has been pummeled in all parts of its financial empire, from credit cards and complex mortgage bonds in the United States to exposure to soured bonds in Dubai.<br /><br />Its problems have resulted in a unique relationship with the government: In addition to providing $45 billion in TARP money, the federal government has agreed to back roughly $300 billion in soured assets that remain on Citi’s books. In addition, Citigroup was the only TARP recipient, aside from GMAC, to convert government-issued shares into common stock to raise equity capital, giving the government a one-third stake in the bank. It is not clear that Citigroup should be in a hurry to repay the government as it grapples for ways to resolve its financial problems. While the bank probably has enough cash reserves and a clear strategic direction, it may need to demonstrate its ability to tap the capital markets before the government relents, analysts said.<br />“Citi needs to focus on solvency and asset sales,” said Chris Whalen, Editor of The Institutional Risk Analyst. “They shouldn’t even worry about repaying TARP.”<br /><br />The benefits of shedding government support were immediate for Bank of America. The bank raised $19.3 billion in a sale of securities at $15 apiece, less than a year after its financial troubles made it virtually impossible to raise new money. Still, Whalen questioned whether Bank of America’s efforts to repay the government were premature at a time when the Federal Reserve was also withdrawing supplemental support for many of the nation’s largest banks. Any effort by Citigroup to get out from under the government’s thumb will probably require a complex, multistep transaction. Citigroup will need to buy back the $20 billion in preferred shares that the government still holds. It also may have to raise additional capital to replace what it paid and to prove its financial strength. Even then, it must persuade the government to unload its roughly 7.2 billion shares in the company — sales that, given their vast size, might be completed in several stages. Pressure is on Pandit to pay back the bailout money quickly as Citigroup board members have moved TARP repayment to the top of the bank’s priority list. <br /><br />But time is running out. Several Citigroup traders, who were not authorised to speak publicly, said they expected most of their colleagues to remain at Citi until they received their bonuses early next year. If a TARP payback plan is not place by March, some predicted an exodus to rival banks where pay is not subject to government restrictions. It also remains unclear what, if any, timeline the government has negotiated with Citigroup. A decade ago, after a blockbuster merger with the Travelers Group, Citigroup was hailed as a banking colossus, a financial supermarket that would turn the staid financial world upside down. But the bank’s huge push into consumer lending, particularly in mortgages that were often repackaged into complex financial instruments, proved disastrous. The bank lost $28 billion in 2008 and has only recently started making slight quarterly gains. <br />Pandit is trying to dig the bank slowly out of its hole, by dismantling its financial supermarket structure and focusing on becoming a more bread-and-butter banking institution. <br />The New York Times</p>
<p>That will put the struggling bank at a further disadvantage as Bank of America and other rivals that have shed the stigma of government support become freer to raise compensation to attract talent and improve their standing with investors. <br />Citigroup’s fortunes have slipped recently as rising consumer losses overshadow gains from its trading activity, a business that has helped banks like Goldman Sachs return to record profits this year as the stock market rebounded.<br /><br />Pandit has made clear that repaying money the bank received under the Troubled Asset Relief Programme (TARP) is a priority. But it may be difficult for the bank to reimburse the government anytime soon, given continuing problems with troubled assets and loan losses. It also must navigate some tricky tax issues that would accompany any repayment. Citigroup has been pummeled in all parts of its financial empire, from credit cards and complex mortgage bonds in the United States to exposure to soured bonds in Dubai.<br /><br />Its problems have resulted in a unique relationship with the government: In addition to providing $45 billion in TARP money, the federal government has agreed to back roughly $300 billion in soured assets that remain on Citi’s books. In addition, Citigroup was the only TARP recipient, aside from GMAC, to convert government-issued shares into common stock to raise equity capital, giving the government a one-third stake in the bank. It is not clear that Citigroup should be in a hurry to repay the government as it grapples for ways to resolve its financial problems. While the bank probably has enough cash reserves and a clear strategic direction, it may need to demonstrate its ability to tap the capital markets before the government relents, analysts said.<br />“Citi needs to focus on solvency and asset sales,” said Chris Whalen, Editor of The Institutional Risk Analyst. “They shouldn’t even worry about repaying TARP.”<br /><br />The benefits of shedding government support were immediate for Bank of America. The bank raised $19.3 billion in a sale of securities at $15 apiece, less than a year after its financial troubles made it virtually impossible to raise new money. Still, Whalen questioned whether Bank of America’s efforts to repay the government were premature at a time when the Federal Reserve was also withdrawing supplemental support for many of the nation’s largest banks. Any effort by Citigroup to get out from under the government’s thumb will probably require a complex, multistep transaction. Citigroup will need to buy back the $20 billion in preferred shares that the government still holds. It also may have to raise additional capital to replace what it paid and to prove its financial strength. Even then, it must persuade the government to unload its roughly 7.2 billion shares in the company — sales that, given their vast size, might be completed in several stages. Pressure is on Pandit to pay back the bailout money quickly as Citigroup board members have moved TARP repayment to the top of the bank’s priority list. <br /><br />But time is running out. Several Citigroup traders, who were not authorised to speak publicly, said they expected most of their colleagues to remain at Citi until they received their bonuses early next year. If a TARP payback plan is not place by March, some predicted an exodus to rival banks where pay is not subject to government restrictions. It also remains unclear what, if any, timeline the government has negotiated with Citigroup. A decade ago, after a blockbuster merger with the Travelers Group, Citigroup was hailed as a banking colossus, a financial supermarket that would turn the staid financial world upside down. But the bank’s huge push into consumer lending, particularly in mortgages that were often repackaged into complex financial instruments, proved disastrous. The bank lost $28 billion in 2008 and has only recently started making slight quarterly gains. <br />Pandit is trying to dig the bank slowly out of its hole, by dismantling its financial supermarket structure and focusing on becoming a more bread-and-butter banking institution. <br />The New York Times</p>
